Third Party Originators and Mortgage Prepayment Risk: An Agency Problem?

Posted: 16 Apr 1999  

Michael LaCour-Little

California State University at Fullerton

Gregory H. Chun

Kimpo College

Abstract

We focus on an agency problem encountered by mortgage lenders and investors in mortgage-backed securities when the underlying collateral is originated by third parties. Third parties, such as mortgage brokers, have economic incentives to encourage borrowers to refinance and, accordingly, their actions may affect asset values. We sketch the principal-agent problem and examine two sets of data. Results support the argument: loans originated by third parties are significantly more likely to prepay after controlling for other known determinants of termination risk. Moreover, third party loans are about three times as sensitive to refinancing incentives, compared to retail loans.

JEL Classification: G21, R39

Suggested Citation

LaCour-Little, Michael and Chun, Gregory H., Third Party Originators and Mortgage Prepayment Risk: An Agency Problem?. Journal of Real Estate Research, Vol. 17, No. 1/2. Available at SSRN: https://ssrn.com/abstract=158629

Michael LaCour-Little (Contact Author)

California State University at Fullerton ( email )

5133 Mihaylo Hall
Fullerton, CA 92834-6848
United States
657-278-4014 (Phone)
657-278-2161 (Fax)

Gregory H. Chun

Kimpo College ( email )

Korea

Paper statistics

Abstract Views
1,070